Ad Hoc Group of Vitro Noteholders v. Vitro SAB de CV (In re Vitro SAB de CV)

Summarized by John Jones , J. R. Jones Law PLLC
13 years 3 months ago

Citation:

Case No. 12-10542 (5th Cir. November 28, 2012)

Tag(s):

Ruling:

AFFIRMED, in consolidated appeals arising from a Chapter 15 proceeding, district court's judgment recognizing the Mexican reorganization proceeding and appointment of foreign representatives and the bankruptcy court's order denying enforcement of the Mexican reorganization plan because it would extinguish the obligations of non-debtor guarantors. The Fifth Circuit extensively discussed the purposes of Chapter 15, including comity, the Debtor's ability to sue and be sued in United States Courts, the imposition of an automatic stay, the power to prevent transfers and a Court's authority to provide "additional assistance."

Procedural context:

Holders of $1.2 billion in Old Notes with guaranties, objected to and appealed Debtor Vitro's Mexican plan of reorganization and filed various involuntary proceedings under Chapter 11 and in state court against Vitro and guarantors of Vitro's debt. Parallel to the Mexican reorganization proceeding, a trustee for the Old Notes filed suit and obtained a declaratory judgment declaring New York law applied to the guaranties and that any "non-consensual" release or discharge was prohibited. Vitro then filed a Chapter 15 petition (Chapter 15 was enacted to implement Model Law on Cross Border Insolvency) for recognition and enforcement of the Mexican Concurso proceeding in New York that was transferred to the ND. Tex. The bankruptcy court held that the Concurso was a foreign main proceeding and approved the representatives. The district court affirmed the bankruptcy court's ruling. Subsequently, following a four day trial, the bankruptcy court denied enforcement of the Mexican Plan of Reorganization under Sections 1507, 1521 and 1506 and denied a requested injunction to stop enforcement of the guaranties. A direct appeal was made from the bankruptcy court's ruling denying enforcement.

Facts:

Vitro S.A.B. de C.V. ("Vitro") is a holding company that, together with subsidiaries, constitutes the largest glass manufacturer in Mexico and operates in seven countries. In a four year period, Vitro borrowed $1.216 billion predominately from U.S. investors through a series of three notes ("Old Notes"). Payment of the Old Notes was guaranteed by Vitro's subsidiaries, governed by New York law and did not allow guarantor's obligations to be released through bankruptcy. Subsequently, Vitro and one of its largest third party creditors, Fintech, entered into a restructuring/sale-leaseback and a trust was created in Fintech's favor with the corpus of the trust constituting of real estate from Vitro's subsidiaries. Partly as a result of this and other related transactions, Vitro's subsidiaries flipped their position from owing Vitro $1.2 billion in inter-company debt to Vitro owing the subsidiaries $1.5 billion in inter-company debt. Vitro did not disclose these transactions to the Old Note holders until 300 days had passed so as to take the transactions outside Mexico's 270-day "suspicion period" during which transactions are subject to extra judicial scrutiny. After a series of failed negotiations on a packaged filing, Vitro then commenced a voluntary "concurso" proceeding under the Mexican Business Reorganization Act in Mexican Court. Under a concurso, a conciliador is appointed who has the ability to mediate the creation of a plan of reorganization, present a plan to the court and is paid based on the number of recognized creditors. The conciliador filed a final list of recognized creditors and submitted a negotiated reorganization plan to the Mexican court for approval. The plan terms extinguished the Old Notes and the guarantors obligations for payment of the Old Notes would be discharged among other things. Because Mexican law allows approval of a plan upon receiving votes of at least 50% in aggregate principal amount of unsecured debt and does not divide unsecured creditors into interest aligned classes, but instead counts votes of all unsecured creditors as a single class, the reorganization plan was approved principally because Vitro's subsidiaries owned over 50% of the votes because of the inter-company debt. Dissatisfied holders of the Old Notes objected and sought to enforce the guaranties in the United States.

Judge(s):

King, Smith, and Barksdale, Circuit Judges

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